2 Isaac Young Jim Latimer Tim Jordan Mark BuckSenior Director, Supply Chain Operations, BioMarin Pharmaceutical Inc.: Isaac has 31 years experience in Biotechnology with roles in Manufacturing, Regulatory Affairs, Information Systems, Ethics, Strategic Sourcing, and Supply Chain. Prior to joining BioMarin, Isaac was a Director of Strategy for the Purchasing & Supplier Management Group at Baxter Healthcare’s BioScience Division. He has worked for small biotech startups and for a supplier to the biotech industry. Isaac has an MBA from Babson College.Senior Director, Purchasing & Supply Management, Elan Pharmaceuticals Inc.: Jim has over 25 years experience in biopharmaceuticals having held positions at Genentech, Tularik,Amgen, and Gilead. A lifetime C.P.M., Jim has served on the Institute for Supply Management (ISM) Pharmaceutical Forum Board of Directors and was a founding member of the Biotechnology Purchasing Association. Jim has an MS in Procurement & Contract Management from St. Mary’s College of California and a BS in Biology from University of South Carolina.Jim LatimerTim JordanAssociate Director of Supply Chain Management, MAP Pharmaceuticals, Inc.: Tim has over 10 years of Medical Device and Pharmaceutical Supply Chain Management experience with large and small businesses. Tim is a Chartered Engineer with the UK-based IET, and has a Masters degree in Industrial Automation. Tim has worked in manufacturing and R&D groups, as well as a Strategic Sourcing and Supply Chain positions in both corporate and business-unit roles.Mark BuckGlobal Procurement and Supply Leader, Bio-Rad Laboratories: Mark brings over 21 years private & public sector experience in supply chain management & global sourcing, Lean manufacturing & operations planning, Six Sigma Quality process improvement, acquisition assimilation, organizational change management, complex outsourcing & global sourcing initiatives serving in roles of increasing leadership responsibility with global companies such as NCR, Solectron, Asyst Technologies, Apple Computer, & Celerity Group Inc. Mark holds a BSEE from the University of Illinois in Urbana-Champaign and was commissioned as a Marine Officer. He attended National University graduating with an MBA.

3 Agenda 10:00 – 11:30 Process Preamble Supplier SegmentationInternal Management ArchitectureStrategiesSupplier Performance MonitoringTotal Cost of Ownership (TCO)SummaryQ & ANext up? Options for future presentationsAgenda 10:00 – 11:30ProcessWe will pause periodically through the presentation to answer any questions or take your comments. Please type in your questions as you have them or “raise your hand” via the webinar tool when we pause.If we don’t get through the entire presentation we will look to your feedback whether we conduct a “part 2” or move on to other topics.

5 The External Stage Issues:Rapidly changing environments - upstream & downstreamIncreasing operational & security risk in supply chainsExpanding cost pressures / requirements for capital preservationAccelerated innovation / accelerated obsolescenceIncreasing emphasis on environmental impact & sustainabilityMore and more data, but not necessarily more and more knowledgeImperatives:Development of agility as the primary response to continued uncertaintyTolerance for ambiguity must become preparedness for ambiguityDesign for supply must become an integral part of product and business development – availability / scalability / sustainabilityResilience

6 Purchasing versus Strategic SourcingHistorical PurchasingPurchase order managementPrimarily an Administrative role – little to no involvement in corporate or supply chain strategy developmentLittle to no involvement in sourcing processLimited expertise with materials / services procuredNarrow focus on purchase price and deliveryLow consideration of supply riskPredominantly reactiveStrategic SourcingSupplier managementDevelops and implements long term supply strategies aligned with corporate strategyInvolved in supplier selection and development early onValue add resource to internal customersBroad perspective on multiple cost elementsResponsible for managing supply riskDriven to be proactive

7 Have An Articulated VisionDescribe what a world class supplier management function would look like at your companyexamples:There is a clear delineation of suppliers based on their strategic importance.Formal, characterized structures exist that define the relationship with a supplier.Supply base strategies exist and are based on robust industry intelligence.Supplier relations are structured around common goalsOpportunities for innovation transfer have been maximized and monitored.A quality system based supplier performance and development program is in place.The supplier base reflects a conscious implementation of documented policies in support of diversity and sustainability.

8 Document What You Do What:Policies, procedures, operational design, operational strategies, goals & achievements, points to consider, supplier performance, total cost evaluations, category strategies, meeting minutes, etc.Why:Documents build equity in the form of a knowledgebase, not just short term value addsDocuments provide the when and why of the lessons learned so the wheel doesn’t get invented againDocuments articulate the value added and facilitates the communication of that value to the rest of the organizationMakes it “official” – they’re required to stand up in a financial auditHow:Start thin – it’s better to have a document that is weak than to have no document at allConsider leaving out of quality documentation system (no FDA review, no deviations if not followed to the letter, etc.)Do have revision control, revision history, reviewer signoff

10 Defining a Supplier BaseFormally stratify or categorize your Supplier base to focus resources where they are most valuableManage total cost of acquisitionIncrease operating efficienciesFoster better communicationBetter leverage the knowledgebase of all partiesMinimize riskNurture opportunities for transfer of innovation

11 How to characterize the SuppliersConsiderations for classificationCategory of spendWhich commodities are involvedAmount of spendDirect vs. Indirect classificationSingle source / sole source statusCriticality to operationsStrategic importanceLevel of perceived riskBandwidth of your resourcesHow many can actually be managed with the resources available

15 Defining a Supplier BaseGoals:More engagement for suppliers that play a higher value role in your operationsMore expedient development of management strategies based on “where a supplier fits”Be cautious in the use of terms such as preferred supplier / key supplier / primary supplier as descriptors / labels without considering the ramifications of existing connotationsRepeat periodically (defined) to re-class Suppliers as appropriatePre-screen the vendor masterIt is probably populated with every payee the company has ever written a check to – not a good starting pointAvailable resources may influence tier volume – work with what you have

17 Selecting An Operating ModelDefine how procurement activity and supplier interaction across the entire organization is structured both now and where it could / should be in the future:DecentralizedProcurement activity, including any policy or other governance, is disbursed across the organization without any centralized oversight (typically just financial controls)CentralizedAll procurement activity / third party interaction occurs in a single groupHybridA significant, defined subset of procurement activity is centralized to a single group with the balance being fully decentralizedCenter-LedA single group is responsible for policy and oversight of any decentralized activity, setting standards, consolidating volumes, driving compliance, etc. with decentralized transactional activity across the organization

19 Category Management TeamsCross-functional (and cross site if applicable) teams are the standard, and for good reason:Increases breadth of expertise applied to the categoryProvides deeper visibility into current and future spendInstills a greater awareness of the internal customer requirementsImproves acceptance / compliance of agreementsFosters credibility internally and with SuppliersCreates greater access for Suppliers to focused areas in the company to improve collaboration and understanding of the customer’s requirementsFacilitates greater opportunity for management of innovation transfer from the SupplierPromotes more awareness of the complexity and magnitude of other team members roles, aiding in the breakdown of organizational silos

20 Category Management TeamsOutput is the articulated category & supplier strategies & tacticsTeam constituency should bring the technical knowledge base together for current and future activity but also get upstream sufficiently to impact product and process design for supply risk reduction within that category – Design for SupplyStakeholders are not necessarily the Subject Matter Experts (SME’s) – SME’s may be found in some unlikely placesTeam constituency can be dynamic – an opportunity to broaden skill sets, increase the diversity of input, and adapt current category strategyRemain sensitive to conflicting prioritiesDiversity in function to function focus and prioritiesTransparency – no hidden agendasSupplier councils (steering committees) – when a Supplier has multiple inroads into your organization

21 Business ReviewsPeriodic, formal, proactive engagement for review of the relationship to assure alignment and optimization.Agenda Example:Company Updates Commodity ReviewSales History ReviewBusiness Forecast UpdatesSupplier Performance (Scorecard Presentation)Quality IssuesDelivery IssuesService IssuesPricing IssuesProject UpdatesOpportunitiesAnd document the meeting minutes as well as any pre-meetings and / or debriefs

24 Supplier Tactics and Responses – Examples:Going direct to end user – excluding PurchasingInclude end user on Category TeamsEstablish “facilitation” policies with guidelinesFocus on upstream product development to get into hard-to-change regulatory filingsGet involved in Product Development process, involve Product Development on Category TeamsEstablish contractual agreements early on in relationshipMake prolific use of the term “or equivalent” in regulatory filingsGetting “sticky”, getting into multiple areas / categories making it more difficult to switch supplier outManage supplier within one Category team but monitor / report on all category involvementsRolled up scorecard (all areas) is basis for business reviews

26 Category Management ProcessThere are multiple models that have been published supporting endless academic discussions. All work towards the same goals.DefinitionCategoryAnalysisStrategyImplementationReviewExample of a 5 step model:Example of a 8 step model:

29 Strategic statements - examplesConsolidate number of suppliers to increase leverage & reduce costsIncrease number of suppliers to increase competitionLeverage Group Purchasing OrganizationsCollaborate to reduce supply riskFacilitate innovation transfer / Integrate suppliers into product development processImprove sustainability profileFocus on other total cost elementsManage demandStandardize specificationsOutsource / in-source material or serviceInvest in key suppliersBecome customer of choice for supplierExpand the currency of the business

30 Gap Analysis ExampleSet strategies over interim time periods (i.e. 1 year, 3 years, 5 years) and measure progress to close the gaps

33 Relationship SophisticationAlignment of goals - Shared visionCommon definition of success and the path to get thereShared customer focusCooperation / collaborationTrustperformance to commitmentPredictabilityConsistencyOpen & effective communicationLeverage competencies of both partiesLong term focus on mutual benefitsDedication to innovation and continuous improvementAcknowledgement of external pressures

35 NotesCategory strategies, if authored by appropriate cross-functional teams, are more readily implemented and refined as the stakeholders have already been involved and continue to be the championsHow much money are you going to spend in trying to save money?Remember the zero-sum game conceptIf your gain is your supplier’s or customer’s loss, it may not be sustainableShifting costs to other areas does not represent value add for the CompanyEven if it can’t be measured, it still can be improved and reportedBeware going after measurable dollars by taking on immeasurable riskFundamental change across the supply chain is real legacy valueStandardization of specificationsEconomies of scaleLeveraging core competencies wherever they areLean processesCost of QualityResilience

39 Measurements Measurement Needs of CEOs/PresidentsThe CEOs/presidents of the 1,000 largest firms (500 manufacturing and 500 service) and 200 best small firms, when surveyed on their need for purchasing measures, said the most-needed measures primarily were non-financial in nature. The five most-needed measures, in order, were:Quality of purchased itemsKey supplier problems that could affect supplySupplier delivery performanceInternal customer satisfactionPurchase inventory dollarsIt did make a definitive step in meeting the requirements identified in the CAPS studyCenter for Advanced Purchasing Studies

42 What has worked and what hasn’tSuppliers took notice and some even used the scorecards internally for communication and improvementsIt did (sometimes) drive focus to areas that needed itMeasurements were rather easy to generate, and generally, looked pretty goodIt played well with the wave of Six Sigma and Lean initiatives that were sweeping businessSome Suppliers waved their high scores around like some victory bannerSome Buyers did the sameThe scorecard frequently did not reflect how either party looked at the relationship – a good scorecard sometimes did not mean a good relationshipA (too precious) few saw an opportunity for a deeper dialog and a vision of real improvement for the Supply Chain

43 Misuse of Supplier MetricsWorse than no metric? Not knowing what to do with the tool and its results before implementing itDoes the metric matter (i.e. 3/1 window on delivery)?Ease of creation useable valueDoes the metric reflect what it implies (Quality)?Precision accuracyThe metric, unto itself, cannot be the sole deciding factor in formulating action, as numbers do not yet tell allBe careful attempting to “formulate” a significant element of your responsibility – If your job could be automated….Einstein’s theorem: “Not everything that can be counted counts, and not everything that counts can be counted.”

53 Assessing and Engaging SuppliersFocus on constructive, not adversarial information / presentationScorecards should not be “scarecards”Use all internal resources – every opinion countsBalance long term direction with short term performanceUse subjective areas as well (innovation, risk, culture, etc.)Don’t confuse precision with accuracyDon’t roll up the scores into one reportable numberConsider making category specific – not one template for allIf your scorecards are always running in the 95% - 100% range, you’re measuring the wrong thingsUse scorecard templates to identify new suppliersIf “metrics that matter” can help inspire and drive continuous improvement, then why wouldn’t we have our suppliers measure us? Consider actionable metrics for both parties and use them.

55 Total CostAll factors impacting the value of the acquisition must be considered:Purchase PriceSales / Use TaxFreightHandling chargesPacking chargesHazardous materials chargesCustoms filings chargesValue Added TaxInstallation costsDisposal costsImpact on operationsConsulting / engineering / implementation costsCost of supplies / consumables / spare partsCost of maintenance / service / calibrationCost of licenses or other feesCost of trainingSalvage valueCost of upgradesValidationCompliance qualificationSupplier qualificationPrototypingOngoing testing & compliance – Cost of QualityDistribution costsWarranty costCost of doing business with (new) SupplierCost of change if required in the futureLead times / cost of required inventoryExchange ratesAnticipated price inflationConsult all stakeholders when assessing costs, not just the end user:Finance, EH&S, QA/QC, Validation, Legal, Supply Chain, Manufacturing, Regulatory Affairs, Compliance, Sales & Marketing, Business Development, etc. – all may have a stake in the choices you make

57 Examples: Filter HousingsCapital layout for one Supplier may be substantially less, but the housing will only fit their filters and they happen to be quite a bit more expensive or provide inferior performancePurification resinsAny marginal difference in the cost of the resin won’t compare to any yield differences in performanceMajor software purchaseImplementation / validation / training / ongoing license and maintenance costs typically outweigh the purchase priceHazardous chemicalsCost of disposal of any excess or the containers may outweigh the savings from a particular Supplier’s offeringAPIHeparin

59 Summary commentsIf you can’t articulate your vision, it’s a hallucinationDon’t let precision mask the absence of accuracyPace the implementation of Supplier Management – the organization is ready for you to start but may not be ready to proceed at the same pace as you areCreation of a value add knowledge base that can be built upon is a great legacy, but it must be documented“Everything should be made as simple as possible, but not one bit simpler” (Einstein)

61 “Because life depends on usTM, the Bio Supply Management Alliance supports continuous learning and improvement of bio supply management professionals and the enhancement of the efficacy of the supply chain of the industry through collaboration.”Our MissionTo build effective and efficient supply chain STRATEGY for the biotech, biopharma, pharma and biomedical device industries by developing, advancing, and disseminating best practices, knowledge, and research. To encourage and promote supply chain INNOVATION within the biotech, biopharma, pharma and biomedical device industries for the highest quality and clinical outcomes in patient care and welfare.To create a supply chain COMMUNITY of thought and practice leaders from the business, professional association and academic sectors for information exchange, shared services, and collaboration.

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